Boomers reluctant to let go of mutual-funds

Among investors with at least $100,000 in investable assets, only 27% of boomers held ETFs

Boomers reluctant to let go of mutual-funds

With the rise of passive management, ETFs have enjoyed tremendous growth around the world in recent years. However, the recent BlackRock 2018 ETF Pulse Survey revealed that its popularity has been uneven across generations.

Among investors with at least $100,000 in investable assets, only 27% of boomers aged 52 to 70 held ETFs, compared to 42% of millennials aged 21 to 35. Even the oldest generation, those who were at least 71 years old, outdid boomers with a 37% ETF adoption rate.

Several factors could be feeding this generation gap in adoption. “Part of my take on it is simply, they set their investments a long time ago, and now they're on autopilot,” Karen Schenone, ETF strategist at BlackRock iShares, said in a recent US News report.

Many boomers began dipping their toes into investing either through stock-picking or buying mutual funds. According to Andrew Damcevski, a certified financial planner and co-founder of Cincinnati-based RhineVest, their graduation from high school or college, and subsequent entry into the work force, coincided with the rise in popularity of mutual-fund companies like Vanguard. “A lot of them gravitated toward mutual funds early on and stayed that course until now,” he said.

The hesitation to let go of their mutual-fund holdings may go beyond nostalgia. Noah Schwartz, a certified financial planner and owner of Blueprint Financial Strategies in Connecticut, noted that investors may be afraid of capital-gains taxes that would be triggered when they cash out their mutual-fund holdings.

“If the funds are held in a taxable brokerage account, then the tax implications of switching to ETFs may be prohibitive," Schwartz told US News. Damcevski pointed out, though, that moving to lower-cost, tax-efficient ETF strategies could make the tax hit worthwhile over the long term. Selling one’s mutual funds in batches rather than all at once could also make it more bearable.

Another possibility, according to Schenone, is that investors nearing retirement tend to lean toward bonds, which they don’t realize are accessible through ETFs. This squares with another finding in the BlackRock survey: only 33% of investors were aware that ETFs can be used for investing in bonds.

“A lot of boomers are focusing on capital preservation, rather than growth – so we tend to see people move their asset allocations greater to fixed income,” Schenone said.